NEW DELHI: There’s bad news for fashion retailers hoping to cut real estate expenses by venturing into ecommerce — running an apparel business online is almost just as expensive as running a brick-and-mortar store in any mall. In fact, with ecommerce in the country pushing fashion brands to give more than 15-20% discounts, it could also eat into profit.

Some fashion brands that entered the online space in the past five years claim to be paying 30-40% commission to ecommerce platforms such as Jabong, Flipkart, Amazon, Myntra and Koovs for sales and product delivery. Last year, Myntra is said to have increased the margin it sought from brands to 36-40% from 28-32% — higher than the 30-35% margins that several apparel, footwear, fashion and lifestyle vendors were giving to brick-and-mortar franchises then.

This is almost as much as they would pay to run a physical retail store, which includes costs like rental (15%), staffing and utilities (8-10%) and maintenance and discounts (5-6%), according to Arvind Singhal, chairman of retail consultancy firm Technopak Advisors. “This (commission) is very expensive,” he said, adding that strong fashion brands wouldn’t pay ecommerce portals more than 10-20% as commission.

“When you’re working with these established players like Flipkart, Snapdeal or Amazon, they have their own cost of operations. They need their margins,” said Manish Mandhana, joint managing director of Mandhana Industries, which markets Salman Khan’s Being Human lifestyle brand. The brand’s ecommerce costs work out to the same as those in the brick-and-mortar space because of margins it gives to these platforms, he said.

Even large companies with big brand portfolios, despite paying lower margins to ecommerce portals, don’t seem to save on costs they would incur in physical retail. Arvind Lifestyle Brands, for instance, bears similar ecommerce costs to its multi-brand retail space costs, according to managing director and chief executive officer J Suresh. Myntra, Flipkart, Jabong and Snapdeal didn’t respond to queries on the commissions they charge.

Apparel brands could save around 8-10% in costs online over offline provided they have reasonable volumes and don’t discount as much, said Anant Daga, chief executive officer of TCNS Clothing Company, which owns Indian women’s wear brand W. The brand pays significantly less than 30-40% as commission to its ecommerce portals because it mostly sells its products at full price. “They don’t need to discount us to sell us,” he said.

With a fashion-clothing product’s margin in physical retail typically at 40-45%, a retailer could make 10-15% profit after covering operating costs, according to Technopak’s Singhal. Compared to this, many fashion brands lose profits in ecommerce because they give away more in discounts than the 15-20% physical rental costs they would save online, he said. “That is why, so far, very few of them —if any — are making any money,” he said.

At the same time, men’s wear brand Freecultr said that ecommerce portals at times shared the cost of discounts. “It’s not that the brand only bears the entire cost,” said Freecultr cofounder and CEO Sandeep Singh. He added that the brand didn’t operate below its gross margin unless it was liquidating old inventory, which formed 10% of its total collection every season.

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